If you live in the United States and are looking to travel by airplane domestically anytime soon, you might want to reconsider. Last Thursday, the Federal Aviation Administration (FAA) announced a proactive measure to reduce flights by 10 percent at 40 high-traffic airports across the country. The reason for this reduction is there are air traffic control (ATC) staff shortages created by the government shutdown that has yet to end. Similar to when I discussed SNAP benefits last week, it astounds me how something as essential as air travel is more vulnerable when there is a government shutdown. Unlike essential services funded independent of annual appropriations, ATC operations under the FAA grind to a halt during political impasses, which shows how dependence on government budgeting makes even critical infrastructure hostage to politics. This latest fiasco, which could have been easily avoided, is one of many reasons why air traffic control needs to be privatized.
FAA's Failure to Modernize ATC
When it comes to ATC, the FAA has decidedly and woefully dropped the ball. Take a look at this capstone memorandum that the Office of Inspector General released in September 2025. This summary of 50 OIG audits covers the FAA's Next Generation Air Transportation System (NextGen), which was the FAA's modernization program that began in 2003. This two-decade, $36-billion program to modernize achieved only 16 percent of its intended benefits. You can read more criticism based on this OIG memorandum here. I will say that the Government Accountability Office (GAO) and its September 2024 report concurs. According to the GAO, 51 of its 138 systems are unsustainable, whether due to lack of parts, outdated functionality, or an inability to fund, the latter of which is rich is given how much money the government has already thrown at ATC modernization.
FAA's Institutional Challenges
The GAO is correct to point out that the FAA is slow to modernize. That is not a mere glitch or an issue of throwing enough money at the problem. The Cato Institute argues in its Handbook for Policymakers that the FAA, being funded by congressional appropriations and constrained by political oversight (e.g., the FAA is re-authorized every five years), makes it inherently and systematically ill-suited to manage ATC. The reason is because the incentive is to protect such programs as NextGen instead of innovating. Because every budget line is subject o congressional oversight and political trade-offs, FAA managers face incentives to avoid risk and preserve existing programs, even when modernization would yield long-term savings.
Instead of cost-saving reforms, Congress is incentivized to demand politically motivated programs. This does not address the cost growth, schedule delays, or performance shortfalls that are endemic within the federal procurement regulations. Whether privatization could eliminate every challenge, what is clear is that the chronic delays in NextGen highlight how the FAA's political funding model and risk-averse procurement system hinder innovation.
Canada as a Model for ATC Privatization
The FAA's performance is a contrast to how Canada has managed ATC, a structure that the Cato Institute has championed. In 1996, Canada privatized its ATC into a self-funded nonprofit corporation called Nav Canada. ATC funding was converted from a ticket tax to a user fee. Nav Canada has won multiple awards for having modern ATC technology and for being one of the safest ATC systems in the world. To support this point, a 2005 GAO report discussed what happened when Canada, Germany, New Zealand, and Australia privatized ATC in the 1980s and 1990s. The result was that privatized systems cut costs, invested in new technologies, and either maintained or increased safety.
Understanding the Natural Monopoly in ATC: Privatization's Limitations
There is a nuance I would like to discuss today that I did not cover in my 2015 piece on ATC privatization. Much like when I analyzed water fluoridation earlier this year, the ATC industry has components of a natural monopoly: high fixed costs, safety and regulatory barriers, and large scale. Competition is possible for the airport towers (terminal services) in terms of contracting those services out to private providers, but the en-route services have the hallmarks of a natural monopoly (Eno Center for Transportation). The en-route, national network, which is the biggest component of ATC, is going to function as a monopoly, whether private or public, due to strong economies of scale and network externalities. Even the NAV CANADA success cited by the Cato Institute is privately owned, yet it remains a monopoly because it is the only ATC provider in Canada. Plus, safety oversight is still provided by the Canadian government through Transport Canada.
This gets to another point: a private monopoly has stronger incentives to innovate and contain costs because its survival depends on performance rather than political appropriations. This allows for increased likelihood to adopt newer technology, lower costs, and improve efficiency, whether those incentives are profit motive, market discipline, customer accountability, or operational autonomy that allows for faster and smarter implementation.
Challenges of Privatization: Why Execution is Key
At the same time, privatization by itself does not guarantee success. A private monopoly still makes ATC prone to avoiding price capture, access denial, under-investment, or over-charging. The United Kingdom semi-privatized in the early 2000s. However, due to the financial difficulties following 9/11, the UK's National Air Traffic Services (NATS) had to be bailed out by the UK government in 2002. Even the aforementioned 2005 GAO study points out that these improvements were not strictly due to privatization. It is not privatization itself, but rather governance during a transition to help ensure success.
Principles for Successful ATC Privatization
For privatization to succeed, there needs to be an independent, stakeholder-based board structure. A user-fee system linked to transparent cost-recovery and actual usage helps. So does an independent safety and economic regulator because it ensures safety without micromanagement. Many of these privatization efforts needed contingency funds to make sure that they were solvent (GAO, 2005). As the UK example shows, the transition needs to be gradual, negotiated, and with safeguards. If not, privatization can go off the rails, so to speak. It is the managerial, financial, and regulatory reforms that the governance allows for that determine privatization's success. Privatization does not guarantee success, but it at least establishes the correct incentive structure that the FAA simply does not offer.
Conclusion
Short of full privatization, converting ATC into a public utility while implementing a user-fee payment system is one of the best courses of action. As the Reason Foundation details, there are 98 countries that have transitioned towards a user-fee payment system. They have more advanced technology and they are independent of the government budget process, the latter of which does not make it prone to rent-seeking, shutdowns, or other shenanigans that come with government budgeting. When done correctly, privatization is a great way to improve ATC. Until the American people can demand serious FAA reform, the United States will continue to suffer from subpar air travel.
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